Greece will become more competitive

Interview
Published in Katherimini , May 16, 2010

The adjustment will be painful but socially fair and balanced, stated Poul Tomsen who is in charge of the IMF team, to “Kathimerini”.

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For a significant amount of time Greece will not have to reach out to the markets, and when it does, before three years go by, it will be borrowing at much more reasonable rates, Poul Tomsen tells Athanasios Ellis.
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You are a technocrat and you see numbers, but behind those numbers there are people.
Of course, people come first. That is why the Government has tried to design the program with a view to fairness and protection for the most vulnerable groups. A significant feature of this program is that the cuts to salaries and pensions in the public sector are done in a way so that the burden falls on those with high salaries and pensions, and with protection for those who receive the minimum. Everyone recognizes that there will be a period of painful adjustment for Greece, but there are also many measures that ensure that the adjustment will be socially fair and balanced.

Was it necessary to have so many cuts?
The harsh reality is that salaries, pensions and social benefits constitute 75 percent of the overall government expenditures.

From what you saw in Greece, what surprised you the most?
The pleasant surprise was that the government had already taken measures before we arrived that corresponded to 5 percent of GDP, and it already knew what it wanted to do—and that’s why it’s a credible program. I was also surprised at the levels of tax evasion. It is inconceivable that there are citizens with very large houses and swimming pools, driving luxurious vehicles, who have not filed a tax return in ten years.

Some people propose that Greece should leave the Eurozone. The Euro’s father, Nobel Prize winner Robert Mundell, recently stated to our newspaper that it would be destructive.
Greece enjoys significant benefits from its membership in the Eurozone. This is what the Greek government also believes, and it is determined to remain in the Eurozone. We absolutely agree with this position, and so this issue has never been discussed.

Others talk about debt restructuring.
This issue was never discussed.

The Greek citizens would like to know if their sacrifices will have any results.
I am convinced that they will have results. (The program) will increase productivity, create jobs, and create the possibility for higher salaries in the future, and I am certain until its completion in a few years, when the measures bear fruit, the Greek people will see that the worst is over and that the economy is back on track.

If your predictions on the course of the Greek economy are not confirmed, all of the planning will be in limbo.
No. We will monitor the economy closely, and there will be some adjustments here and there—because it’s always difficult to predict the exact course of development for a country. In all IMF-supported programs— not only Greece—funds are disbursed in three-month installments under the prerequisite that specific economic goals are achieved.

Did the delay in Germany and the EU to decide on the financial support made your task difficult?
For every problem one is called to confront, the sooner one does it, the better. The international environment that was created may have made it more difficult to confront this problem; but the international community is now, clearly, providing unprecedented support to Greece. That is the most important point.

We know what’s at stake for Greece. Is the reliability of the IMF and E.U. also at stake?
It is very important for all of us that this program succeeds because the most significant and specific measures are taken up front, there is wide support by the international community, and mainly, this is not an IMF program because the government had already initiated its implementation before the IMF’s involvement.

Did you discuss the elimination of the 13th and 14th salaries in the private sector?
All economic issues were discussed, including how to deal with the lack of competitiveness, which in our view will require a reduction in wages. Given that there is likely to be general pressure on wages in the private sector as economic activity declines, the government felt that there was no need to mandate a reduction under the program, and we agreed.

Is there provision to support the Greek banks?
The capitalization of the Greek banking system is very good. You have a traditional banking sector that was not exposed to the toxic products and the attitudes that threaten the banking systems of other countries. We performed stress tests on how the system will overcome pressures and, specifically, under much worse conditions than the ones we expect will occur. In this worst case scenario, there might be a need to support the banks with 10 billion euro. At the same time, also important is the announcement from the European Central Bank that even if Greek bonds are further downgraded, they will continue to be accepted.

A National Effort is Required

Before the election, today’s government estimated that “there is money”, and it promised benefits.
When today’s government took over, it faced an unexpected ugly fiscal situation, and it reacted by taking difficult but essential measures. When it saw that the situation continued to deteriorate because of the external environment, it realized that the measures were not enough, and it decided to take more (measures).

How do you see the position adopted by the opposition?
For the program to succeed a national effort is required, with broad support across the entire political and social spectrum. I note the Greek Parliament approved the (respective) legislation and expressed its support.

The opposition maintains that the program does not contain any elements for development.
That is completely wrong. There are many measures aimed at stimulating growth, on how competitiveness will be strengthened, on how to limit waste, on how to transfer resources to more productive sectors. All this aims at increasing productivity and creating new jobs in the future.

What would you say to the working people on strike on Wednesday reacting to cuts on their income?
Firstly, I want express my sadness for the death of three people. Prime Minister Papandreou put it well when he said “Protests and demonstrations are one thing but violence is quite another.” Of course, protests are legitimate. But violence is condemnable.